It’s Market Planning Time: Look Ahead to 2019

THE BIG PICTURE

You may remember the two-page chart in last year’s issue that showed how many of the fastest-growing metros in the United States shared some defining characteristics that set them apart from other MSAs with less robust economies. We are not going to run the chart again because of space considerations and the fact that many of the cities mentioned in it are among the leaders again this year. But the growth categories themselves are helpful in identifying some of the things the growth markets have in common, like geographic location, demographic trends or dominant regional industries.

• The Big Dogs — Metros with more than 2 million residents expected to add population the fastest over the next few years. Houston and Dallas are leading the pack right now.

• Growth Belts — Economically supercharged regions of the U.S. Raleigh-Durham, Austin-San Antonio, San Jose-San Francisco and Colorado’s Front Range are the best examples.

• The Oil & Gas Economies — Midland-Odessa, TX, and the Texas/Louisiana Gulf Coast are smoking hot, while North Dakota’s Bakken region is still in recovery mode.

• Tech is Tops — Silicon Valley-San Francisco, San Diego’s biotech patch, Boston, Austin and Seattle are growing fastest.

• Stars of the Sunbelt — Big-time population growth and residential construction activity are driving Multiple MSAs in Florida, South Carolina, North Carolina and Texas. Phoenix, and much of Colorado’s Front Range, (Colorado Springs north through Denver and Boulder to Fort Collins and Greeley), are building homes like crazy, too.

• Swinging High and Low — Cyclical metros that can be really hot or scary-bad. Dallas, Houston, Orlando and Phoenix are super-busy right now, but they can hit the skids in tough times.

•  Vacation Land, Lifestyle, Retirement Havens & Nirvana for Telecommuters — Bozeman, MT; Bend, OR; Boise, ID; St. George, UT; Myrtle Beach, SC; and Southwest Florida bank on the leisurely lifestyles they can offer to attract new residents and businesses.

• Ports, Rail and Intermodal Hubs — Port construction and investment in rail lines and intermodal hubs drive growth in these MSAs. All of the larger ports, including Long Beach-Los Angeles, Houston, Oakland and New York-New Jersey have benefited from this trend. Activity in some smaller ports, like Savannah GA, also is strong.

• Small But Mighty — Metros with less than 500,000 residents showing all the signs of big-time growth. See Vacation/Retirement/Lifestyle metros.

PROJECTS AREAS PACKING A PUNCH

When you consider that electrical work can easily account for 10% or more  of  the average construction project’s total value, the billion-dollar mega-projects now underway or on the drawing boards can add hundreds of millions of dollars in electrical sales potential. Here are some construction categories that look particularly hot right now.

Airports. Electrical Marketing’s construction project database includes more than two dozen airport projects, and Architectural Record magazine recently reported that “over the next three years, an estimated $70 billion will be spent to modernize aging aviation infrastructure at over 50 airports.” Airport redevelopment and expansion often includes all sorts of related construction of hotels, restaurants, rental car facilities and other commercial construction. On top of the $4 billion to $6 billion renovation of New York’s LaGuardia Airport, the state of New York wants to build a $1.5 billion Air Train mass transit link to the city’s existing rail systems to carry travelers into midtown Manhattan.

Mixed-use projects. Of all the hottest construction segments, mixed-use projects — which usually include a blend of multi-family or single-family (suburbs), offices and retail construction — may be the most active and are having the most dramatic impact on downtown urban redevelopment and suburbia. You have everything from the mega-projects like the Hudson Yards development on the west side of Manhattan, which Forbes magazine called the “largest private real estate development in the United States,” to dozens of other multi-billion-dollar urban renewal projects changing cityscapes throughout America. There’s also countless relatively small mixed-use projects underway that include a few dozen apartments, and a handful of restaurants, stores and offices.

If you want to check out some gigantic mixed-use projects, Google the CityPlace project in Santa Clara, CA, a $6.5 billion, 9-million-sq-ft project; Tampa’s $3 billion Water Street project that will  change the face of the city’s downtown along the bay; Washington, D.C.’s $2.2 billion Wharf redevelopment, currently the city’s largest commercial project; Boston’s Seaport District; Frisco, TX, outside Dallas; or the Seaport San Diego project, one of several multi-billion dollar mixed-used projects that will give the city’s waterfront and downtown a new look.

Oil & gas. Texas’ Midland and Odessa market areas and the Gulf Coast lead all oil & gas markets. Over the past year, some giant refineries and petrochemical plants in Texas and Louisiana either hit the drawing boards or broke ground, including the multi-billion-dollar Exxon Baton Rouge refinery expansion in the planning stages; the G2 Petrochemical Complex in Cameron Parish that www.kplctv.com says will total $23 billion from the construction of various chemical facilities, including a $11 billion LNG facility and a petrochemical plant.

Rail. Our editors tallied close to 30 major rail projects either underway or being planned. All have a price tag of no less than $1 billion. Some are relatively modest expansions of existing light-rail systems, like what’s underway in Seattle or the two projects in the planning stages in Minneapolis — a $1.9 billion light-rail expansion and a $2 billion new link from downtown to the airport. Other projects are impressive in their scope, like the $15 billion bullet train folks are planning to build between Dallas, TX, and Houston, TX, or Florida’s Brightline high-speed links between Orlando and Miami and Orlando and Tampa.

Most of the rail projects we logged in are still in the planning stages, which may bode well for future electrical sales in this category. One of the larger rail projects now underway is the conversion of Manhattan’s old New York Post Office Building on 34th St. to the $1.6 billion Moynihan Station, which will be a primary commuter link for the Big Apple.

LOCAL MARKETS LOOKING STRONG

Let’s now look at some data for several key publicly available electrical market data indicators that you can use to evaluate your own local market — electrical contractor employment, manufacturing employment, population growth, gross metropolitan product (GMP) and building permits. They will offer you a rough idea on where the electrical market is trending right now, and where it may be headed in 2019. The tables in this article list the metropolitan statistical areas (MSAs) showing the biggest increases for each of the indicators discussed in this article. If you need quarterly updates of all this data for all 300-plus MSAs, it’s  available at www.electricalmarketing.com as part of a  special introductory $395 subscription price.

Electrical contractor employment. One of the most important electrical market indicators to watch is electrical contractor employment because electrical contractors account for close to 50% of all sales through full-line electrical distributors and each employee represents $65,151 in sales potential, according to the EW Market Planning Guide’s latest sales-per-employee multipliers.

The news with electrical construction employment is quite positive. Through May, electrical contractor employment has held a three -month moving average over 900,000 employees for 10 months, a level we haven’t seen since Nov. 2007, just before the Great Recession. Just to give you some perspective, during the depth of the recession, electrical contractor employment dipped below 700,000 employees for several months. The low point was March 2011 when it dropped to 696,800 employees.

Because electrical contractors now employ 213,000 more employees than during the darkest days of the recession, that $65,151 in potential sales per contractor employee means that today there’s $13.9 billion more in sales potential from electrical contractors nationwide than there was in early 2011.

The data gets even  more interesting when you drill down to individual markets seeing the most growth in electrical contractor employment. When you look at the top-line numbers for total YOY growth in contractor employment at the MSA level, you might not be surprised to see fast-growing metros like Miami-Fort Lauderdale-West Palm Beach; Houston-The Woodlands-Sugar Land; Dallas-Fort Worth-Arlington; Phoenix-Mesa-Scottsdale; Los Angeles-Long Beach-Anaheim; Atlanta-Sandy Springs-Roswell; and Seattle-Tacoma-Bellevue on the list.

When you look at things in terms of percent growth YOY, many of the markets adding the most contractor employees focus heavily on oil & gas growth. For instance, total contractor employment in Midland, TX was up 26.1% YOY, adding $57.9 million in electrical contractor sales potential, and nearby Odessa, TX, was up 14.4%. Other oil & gas markets that saw double-digit increases YOY in construction employment include Weirton-Steubenville, OH (+21.7%); Greeley, CO (+14.1%) and Lake Charles, LA (+12.6%).

Manufacturing employment. In the industrial market, few MSAs are seeing the sort of double-digit increases in manufacturing employment as the fastest-growing metros now see in  construction employment. The Reno, NV MSA, home to Tesla’s gigafactory, topped the industrial employment growth list once again, with a 19.7% YOY increase and 3,900 additional manufacturing employees. Six other MSAs saw double-digit increases in manufacturing employment: Yakima, WA; Casper, WY; Miami-Miami Beach-Kendall, FL: Fairbanks, AK; San Rafael, CA; and Kokomo, IN. In contrast, 34 MSAs were enjoying double-digit YOY increases in construction employment.

As fans of EW’s Market Planning Guide’s national multipliers know, each manufacturing employee represents $761 in potential for industrial MRO business, $795 in OEM business and $104 in factory automation business. See the chart on page 24 for the Top 10 markets for industrial sales potential.

Permits per thousand residents. Permits-per-1,000 residents is an interesting measure of single-family housing activity in a market because it compares big and small markets by the same measure. The markets with the most single-family permits year-to-date through May include perennial housing leaders such as Houston-The Woodlands-Sugar Land, TX ; Dallas-Fort Worth-Arlington, TX; Atlanta-Sandy Springs-Roswell GA; Phoenix-Mesa-Scottsdale AZ; Austin-Round Rock TX ; Orlando-Kissimmee-Sanford FL; Charlotte-Concord-Gastonia NC-SC; Washington-Arlington-Alexandria DC-VA-MD-WV; Tampa-St. Petersburg-Clearwater FL; Nashville-Davidson-Murfreesboro-Franklin TN; and Denver-Aurora-Lakewood CO.

But when you compare housing activity to a MSA’s population, there are other markets, usually much smaller, where residential construction may account for a bigger share of the market’s overall economy. For instance, among the leaders in permits-per-thousand residents are retirement areas like The Villages in Florida, the largest retirement community in the United States, and St. George, UT, and vacation/lifestyle havens like Bend-Redmond, OR, and Boise, ID. Raleigh, NC, was the largest MSA in this listing. As a point of comparison, in 2017 the United States had approximately 2.5 single-family permits per thousand residents. Check out the chart on page 22 to see the other metros that ranked high.

Building permits. This monthly data compiled by the U.S. Census Bureau is considered to be a reliable indicator of residential building activity up to five to six months in the future, and a leading indicator for retail and light commercial growth, as well as home improvement purchases. That’s because when people move into their new homes they need places to shop, eat and gas up their cars.

Before the recent tariffs took a bite out of building materials like lumber and roofing materials, most construction economists believed the housing market was on a solid growth track, with single-family permits and starts continuing to outpace multi-family activity. On a national basis, Single-family housing starts in June plunged -9.1% to 858,000, while multi-family starts dropped about -20%. At press-time, it was too early to say if these declines were a one-month aberration in what had been a pretty solid year for the housing market, or the start of a tariff-induced longer-term decline.

Gross Metropolitan Product (GMP). GMP is the value of all final goods and services produced within a MSA. It’s a good indicator of the overall health of a MSA’s economy. When you peruse the Bureau of Economic Analysis’ regional Gross Metropolitan Product figures, you will see some familiar MSAs at the top of your Excel sorts of the metros with the biggest changes in GMP, with cities like Bend, OR; St. George, UT; Provo-Orem, UT; The Villages, FL; Cape Coral-Ft. Myers, FL; and Raleigh, NC, among the leaders. See the chart on page 17. One downside with the BEA data is that’s it’s a bit old, because the 2017 data won’t be out until September. To get some GMP forecasts for local metros, check out the report IHS prepared for the United States Council of Mayors entitled “U.S. Metro Economies,” which provides GMP forecasts out to 2022 and other interesting local economic data.

Summary. EW’s editors hope you enjoy our picks for the hottest local markets and snapshots of what’s happening with key construction segments so you can get that 2019 strategic market plan started. Barring some unforeseen economic or global calamity, the early indicators point to another year of growth for the electrical industry. But as you can see from the data published in this article, all business is local and some metros will be growing at much faster rates than others.